Booz Allen and Partnership Leverage Smart Card Technology to Drive a Dynamic Collaboration
A compelling white paper outlines the convergence between two seemingly dissimilar industries: Public transit and financial services.
A tremendous shift in the smart card market is now under way: It involves the public transit and financial services industries—and a groundbreaking collaboration that could benefit millions of customers.
In October 2006, the Transportation Council of the Smart Card Alliance published a white paper examining smart card technology trends in these two disparate industries. Called “Transit and Contactless Financial Payments: New Opportunities for Collaboration and Convergence,” the paper assesses an extraordinary industry collaboration that would implement a payment model allowing transit agencies to accept contactless payment cards at fareboxes or fare gates.
Traditionally, transit fares are paid with a ticket, token, or cash, and agencies issue the payment mechanism. Since the 1990s, however, agencies have been investing heavily in contactless, smart card-based automatic fare collection (AFC) systems to improve efficiency and service. At the same time, the financial industry is adopting payment methods based on contactless smart cards in retail point-of-sale environments such as quick-serve restaurants, convenience stores, and pharmacies where speed and convenience are important to customers.
Because both industries adopted common international contactless card standards to define the card/reader interface, this provided the opportunity to establish an “open payment linkage” between them. Open payment platforms can lower agency operating costs by eliminating the need to issue cards.
“I’ve experienced the evolution of smart cards since 1991, and what makes this shift so important is that financial institutions are embracing contactless technology for payment,” says Booz Allen Hamilton principal Willy Dommen. “This presents enormous opportunities to change payment-related behavior—the way the Internet changed shopping behavior.
“Contactless payment is not limited to cards,” he adds. “This payment capability can be embedded in formats such as key fobs, watches, or mobile phones. Operational benefits of contactless payment will drive its adoption, result in real savings for merchants, and substantially change the relationship of transit agencies with their customers and with the marketplace.”
The Widespread Impact of Smart Card Technology
First developed in the 1970s and featuring embedded computer chips, smart cards revolutionized automatic data collection and management. Today, smart cards are used extensively in industries such as telecommunications (e.g., phone cards), financial services (e.g., Europay, Mastercard & Visa [EMV] credit and debit cards), retail (e.g, loyalty cards), transportation, and healthcare (e.g., health ID cards). Government agencies also use them for identity and access management.
The industry “voice” for smart cards since 2001, the nonprofit Smart Card Alliance (previously the Smart Card Forum) brings together leading users and technology experts from public and private sectors to promote the application of smart card technology through educational, advocacy, and industry relations initiatives.
“The strength of the organization is in the contributions of its members,” says Dommen. “The Alliance provides a forum for the smart card industry to share ideas and solve problems, and a repository of information and contacts.”
Currently, most contactless smart card-based AFC systems in public transport are closed systems with a single operator or regional group, and based on proprietary technology controlled by the supplier. But efforts are under way to develop open specifications similar to the financial industry’s magnetic stripe cards to ensure credit and debit cards are compatible with acceptance infrastructures such as point-of-sale terminals and ATMs.
Booz Allen and the Alliance are working within transit agencies’ tight budget constraints to help them make a faster transition to open payment methods.
Says Dommen, “Contactless payment is driving the convergence of multiple platforms as a payment device. For example, mobile phones are becoming PDAs, PDAs have mobile phone capabilities, and both devices are being enabled with smart card applications such as contactless credit or stored value. These trends impact cash processing and other business operations. Booz Allen is helping clients navigate the business challenges presented by these changes in the marketplace.”
One example of benefits resulting from a transit/private industry relationship is illustrated by the evolution of the Japan Rail East transit system, which embedded a stored-value smart card chip in mobile phones. The organization expanded payment options from transit fares to small merchants located near train stations. Previously cash-only businesses, these merchants now have fully integrated financial services with banks and credit cards.
There are, however, still obstacles to overcome. “Whether it’s a government agency or private industry, funding is always a challenge,” says Dommen. “Funding from other projects may need to be diverted to pay for the contactless payment infrastructure. Transit fares and fare policies can be complex and may require specialized fare calculation engines. In the financial services industry, making even minor changes to an established transaction processing infrastructure can be costly and returns may not materialize for years.”
Another challenge is standards adaptation; the transition to new technology is slowed without common standards. The primary barrier, however, is in the supplier community with the integration of certified smart card readers into legacy systems.
Booz Allen is Driving Smart Card Use in Major Sectors
As a recognized thought leader in smart card technology, Booz Allen’s clients include worldwide public transit agencies, credit card and financial institutions, and defense and civil government agencies. The firm’s expertise in market strategy, market assessment, technical valuation, strategic alliances, and capabilities building is crucial to private sector clients, and its technical oversight of systems implementation and design and engineering has been used extensively in the public sector for developing transportation fare payment and open payment systems.
“All government and many commercial clients are impacted by smart card technology,” Dommen continues. “With its world-class capabilities, Booz Allen has driven the use of smart cards in key sectors such as healthcare, electronics benefits transfer, transportation payment, public key infrastructure (PKI), biometrics, and identity and access management (IDAM). We’re helping clients integrate technology to increase revenue and efficiency.”
Booz Allen is also contributing to standards development across industries and for the International Standards Organization (ISO), including smart card ticketing standards in North America and Australia.
As noted in the white paper, transit agencies are currently working with the financial industry to develop a business case and risk models to enable acceptance of financial industry-issued contactless payment devices in transit stations and on buses. With almost 10 billion annual transactions, the public transit market presents one of the largest micropayment opportunities in the U.S.
The Alliance is also overseeing pilot programs under way in New York and Utah, where a contactless device directly accepts payments at subway turnstiles and bus fareboxes.
Because of the unprecedented cooperation of the financial services industry, the “Transit and Contactless Financial Payments” paper provides information and insight never before made available to the public. The Alliance also released a second white paper outlining the strategic direction of contactless payments. A third paper will be published shortly.
story posted November 27, 2006
